STRENGTHENING PARLIAMENTARY SCRUTINY OF ESTIMATES AND SUPPLY

Every year, the government asks Parliament to approve the funds
required to meet its financial obligations. This process is commonly referred
to as the Business of Supply. The Crown transmits to the House of Commons the government's
spending plans, or "estimates", for parliamentary scrutiny and
approval. The sole authority to grant the “supplies” needed rests with
Parliament.

Standing committees, as extensions of the House, play an important
role in reviewing and scrutinizing the government’s spending plans in order for
Parliament to approve it. The committees are expected to perform detailed
scrutiny of government spending and performance. However, it has long been
acknowledged that Parliament does not effectively fulfill its role and standing
committees are at best giving perfunctory attention to the government’s
spending plans.

In recent history, there have been two wide-ranging reviews of the
estimates process, one by the House of Commons Standing Committee on Procedure
and House Affairs in 1998, and another by the House of Commons Standing
Committee on Government Operations and Estimates (hereinafter the Committee) in
2003. Of the 75 recommendations that came out of the two reports, The
Business of Supply: Completing the Circle of Control[1] and Meaningful Scrutiny:
Practical Improvements to the Estimates Process[2], few changes were made. The
process for considering the estimates and supply should be revitalized, as
there is still a need for more meaningful scrutiny.

As dissatisfaction with Parliament’s role in the scrutiny of
government spending still remains, both among observers and among many members
of Parliament, the Committee began a study in January 2012 on the process for
considering the estimates and supply in the hope of addressing some of the
barriers that serve to inhibit parliamentary scrutiny of the estimates. The
Committee was created in 2002 with a clear mandate to guide and oversee the
House of Commons estimates review process, either directly through the
estimates documents or indirectly by examining government operations. With this
role in mind, rather than recommending grand changes that may not get
implemented, the Committee is looking to make focused and modest
recommendations that will result in progress in select areas.

Some parliamentarians feel that they lack adequate information and
support or expertise to hold the government to account effectively. Of the many
concerns, the volume and complexity of information provided, and the limited
time available to fully understand the documents and “connect the dots” are
only the tip of the iceberg. Members of this Committee hope that the government
will make the process more coherent, provide clearer, more consistent and
reliable information, and ensure that any member of Parliament can have a good understanding
and a common reference point to better study the government’s spending plans.

The Committee hopes to build on the work done by previous
committees and on experts’ knowledge to formulate recommendations that would
improve Parliament’s, and particularly standing committees’, scrutiny and
review of the government’s spending plans. Improvements to the process would
consequently enhance transparency and accountability, which are key elements of
good governance. Through this study, the Committee members hope to address the
public’s perception that Parliament is ineffective in its review of the
estimates. As Jack Stilborn, retired principal analyst with the Library of
Parliament, said, “a stronger focus on how Parliament actually works today
could result in more realistic expectations, lower the frustration level, and also
perhaps suggest some changes that might actually make a difference.”[3]

The Committee focussed its study by examining the process on three
levels — procedures, structure, and support — to identify ways to strengthen parliamentary
scrutiny of the estimates and supply. For example, in an era of modern
information technologies, opportunities exist for transforming the way
information is provided in order to streamline and reduce the complexity and
volume of printed materials. Other opportunities exist to make the processes
more meaningful for both members of Parliament and the general public by better
connecting the budget and the estimates documents or by changing the vote
structure to give parliamentarians more control over program activities.

In other words, the Committee hopes that its study and this report
will lead to greater and better scrutiny of the estimates by standing
committees. The Committee believes that this can be achieved by improving the
parliamentary processes to consider the estimates, ensuring that
parliamentarians have clear and understandable estimates information, and
providing sufficient support and capacity for members to interpret the information
available.

This report is based on the testimony heard over several months
from various witnesses, including former members of Parliament, departmental officials,
academics, international experts, the Auditor General of Canada, the
Parliamentary Budget Officer, a former Clerk of the House of Commons and other
knowledgeable observers. After presenting a brief history of the Business of Supply in Canada, this
report sets out the Committee’s findings and recommendations in light of this
testimony.

The principles underlying Canadian
parliamentary financial procedures go back to the Magna Carta, signed by
King John of England in 1215. When the King was not able to finance most public
expenses out of his own revenues, he was obliged to seek funds by summoning the
common council of the realm, or Parliament, to consider what taxes and tariffs
should be supplied to support the Crown. It was generally recognized that, when
“aids” or “supplies” were required, the King should seek consent not only to
impose a tax, but also for the manner in which the revenues from that tax might
be spent. In 1295, the writ of summons for one of these councils proclaimed:
“What touches all should be approved by all.”[5]

Clauses of the Magna Carta stating that "scutage or
aid"(taxes) can only be levied and assessed by the common counsel of the
realm found their way into Canadian financial procedures at the time of the
Confederation, in 1867. Today, Standing Order 80 clearly indicates that the House
of Commons retains that authority by stating that “[a]ll aids and supplies
granted to the Sovereign by the Parliament of Canada are the sole gift of the
House of Commons.” Parliament’s control of the public purse is still very much
at the heart of our democratic government.

When Canada was founded, the intention was that its financial
procedures would reflect as closely as possible the procedures of the United
Kingdom. The British process had gone through changes in the past centuries and
Canada incorporated those changes in its model. One of those changes was the
creation of the Consolidated Fund, introduced by the British in 1786, which
abolished the necessity of matching a particular expenditure with a specific
source of revenue. Prior to this Fund, a request to the Commons that money be
supplied for a particular purpose generally required a request for a new or
renewed tax and the statute that authorized the tax also authorized the
expenditure for a specified purpose.[6] The Canadian Constitution Act (hereinafter the Act), 1867 consequently created the Consolidated Revenue Fund (hereinafter the Fund),
along with the new kind of bill, the bill to appropriatefrom the Fund
the specified amounts required for specified purposes.[7] The Act also provided that
a bill appropriating any part of the public revenue or imposing a tax or duty
must originate in the House of Commons, with the recommendation of the Governor General in the session in which the measure was proposed.[8]

Supply procedures established in 1867 remained basically unchanged,
with the exception of minor changes, for the first hundred years following
Confederation. In 1968, a significant change occurred when all estimates began to be referred
to standing committees, rather than the Committee of Supply. Prior to 1968, all
the estimates had to pass through the Committee of Supply before the Finance
Minister would move a motion for the House to resolve into the Committee of
Ways and Means to consider resolutions to authorize the necessary withdrawals
from the Fund. The changes made in 1968 were based on the premise that the
detailed scrutiny of estimates could be done more effectively in the various
standing committees of the House, rather than referring the estimates to a
single Committee of Supply.[9] Other changes to the rules and procedures of the House were made at the time
and established the current business of supply practices, such as the division
of the parliamentary calendar into three periods ending on December 10, March
26 and June 30 for the purposes of supply, the designation of twenty-five
“allotted” days whereby opposition motions have precedence over all government supply
motions, the reference of all estimates on or before March 1, and reported back
to the House by May 31. These changes allowed for the introduction of a
financial timetable in the parliamentary calendar, and also prevented the delay of supply.[10]

A great deal of work has been done in recent years in order to make
Parliament’s capacity to control government spending more effective. The 1998
review of the process reported in The Business of Supply: Completing the
Circle of Control covered a wide-range of issues related to the estimates
process, including recommending the creation of a standing committee on the
estimates, the ability for committees to reallocate funds, and greater
examination of statutory and tax expenditures. As for the 2003 report, Meaningful
Scrutiny: Practical Improvements to the Estimates Process, it primarily
focused on practical steps standing committees could take to improve the
effectiveness of estimates review, as well as ways to make departmental reports
to Parliament more useful.

Following past studies, a number of significant changes have been
made to the process by which standing committees review estimates and their
associated documents. In October 2001, the Standing Orders were changed to
allow the Leader of the Opposition to select two departments or agencies to
have their estimates considered by the Committee of the Whole House. Later in
2002, the House of Commons Standing Committee on Government Operations and
Estimates was formed, following the
1998 report of the Standing Committee on Procedure and House Affairs
recommending the creation of a committee on the estimates with a mandate to
monitor and review the estimates and supply process and related matters. The
Committee’s mandate includes, among other things, the study of expenditure
budgets of central departments and agencies, and the format and content of all
estimates documents. Following its creation, the committee began examining ways
to improve the estimates process by presenting its 2003 report, Meaningful
Scrutiny: Practical Improvements to the Estimates Process.

The means by which the government reports information to Parliament
has also gone through many changes recently. One of the biggest changes came
from the division of Part III of the estimates into two documents. Each
department now produces a report on plans and priorities, tabled in the
spring,which establishes departments’ expenditure plans and priorities
for the current year and the following two years. Departmental performance
reports, tabled in the fall, enable parliamentarians to compare departments’
results with their respective expenditure and performance plans. All
departments and agencies have tabled these reports since 1997. This reform was
part of the Treasury Board of Canada Secretariat’s initiative “to improve the
expenditure management information provided to Parliament ... [by] sharpening
the focus on results, increasing the transparency of information and
modernizing its preparation.”[11] The initiative was also “to make available information on departmental
activities, expenditures, and plans in ways that could facilitate use and
comprehension.”[12] Other reports, like the Department of Finance’s annual report on tax
expenditures, the departmental future-oriented financial statements and the
departmental quarterly financial statements have also been added to meet the
demand for more meaningful and useful information.

Notwithstanding the changes that have been made to House of Commons
procedures and modifications to the information available to parliamentarians,
the Committee believes that further improvements are needed, as outlined in the
rest of
the report.

Accrual-based accounting recognizes transactions when they have been
earned or incurred, as compared to cash-based accounting which reports transactions
when cash is received or paid out. Currently, the federal budget and the consolidated
financial statements of the federal government are prepared on an accrual basis
of accounting, whereas the main and supplementary estimates and the associated appropriations
(votes) are reported on a cash basis of accounting. The basis of accounting for
appropriations is directly linked to how Parliament controls votes for supply.

In the course of its study, the Committee considered the matter of cash
versus accrual-based appropriations in the context of what information is most useful
for parliamentarians in their consideration of estimates and approval of supply.
The Committee heard from some witnesses who suggested that the financial information
and appropriations in the main and supplementary estimates should be presented on
an accrual basis as opposed to a cash basis. However there was no consensus among
witnesses on the matter and the Committee heard from several witnesses who strongly
favoured that information in the estimates remain on a cash basis.

Historically, the consolidated financial statements of the federal government
were prepared on a modified accrual basis of accounting; essentially, transactions
were recorded on a cash basis during the year, and certain accrual information was
prepared at year-end.[13] In the 1996 Federal Budget Plan, the federal government announced its intentions
to move to full accrual accounting for budgeting and accounting purposes.[14]
The move to full accrual accounting was in accordance with the recommendations of
the Canadian Institute of Chartered Accountants' Public Sector Accounting Board.
At that time, however, the federal government did not make any decision to change
the basis of accounting for the estimates and the associated appropriations. Dating
back to the September 1998 Report of the Auditor General of Canada, the Auditor
General commented that “appropriating funds on a full accrual basis is currently
the missing link in the government's plans to move to full accrual accounting.” [15]

As of April 2001, all departments and agencies had successfully implemented
new financial systems capable of handling accrual financial information for the
preparation of summary and reporting financial statements.[16] Following implementation, the
2002-2003 financial statements in the Public Accounts of Canada and the 2003 Budget
were both prepared on a full accrual accounting basis. According to officials of the Treasury Board
of Canada Secretariat, accrual accounting was also implemented to support decisions
requiring cabinet-level decisions.[17] Since that time, the federal budget and the consolidated financial statements of
the federal government have been prepared on an accrual basis of accounting. Appropriations
included in the main and supplementary estimates, however, continued to be reported
on a cash basis of accounting.

Some witnesses recommended that appropriations should be presented on
an accrual basis of accounting. For instance, Michael Ferguson, the Auditor General
of Canada, stated that a “full accrual approach to budgeting and appropriations
would recognize budgeting and spending by votes when the underlying economic transactions
are expected to occur, rather than when cash is expected to be paid.”[18]

According to “Chapter 1 — Financial Management and
Control and Risk Management” of the June 2011 Status Report of the Auditor General
of Canada:

Accrual-based financial information reflects a more
complete picture of government resources, obligations, financing, costs, and the
impact of activities than cash-based accounting. Applied to budgeting and appropriation
of funds, it is intended to provide management with complete cost information and
allow for more informed decision making, such as when evaluating the cost-effectiveness
of in-house delivery versus contracting for services. Having this financial information
provides improved transparency and accountability and better information for planning
and controlling operating and capital spending. This, in turn, can give legislators
more information to consider in holding government accountable for the stewardship
of public assets, the full costs of programs, and its short-term and long-term financial
obligations.[19]

Peter DeVries, a consultant and former official with the Department
of Finance, stated that:

Ever since [the federal government] moved to a full
[accrual] accounting for the budget and the audited financial statements, without
having the same thing happen to the estimates, there has been a big delink between
the two, to the point where the estimates are basically irrelevant for budget planning
purposes.[20]

Several witnesses recommended that the federal government keep the current
model of cash-based appropriations. Officials from the Treasury Board of Canada
Secretariat stated that, generally speaking, cash is viewed as being more transparent
for parliamentarians, and more easily understood.[21]

According to Bill Matthews, Assistant Secretary of the Expenditure Management
Sector at the Treasury Board of Canada Secretariat, the Netherlands completed a
study on accrual-based budgeting and appropriations with a focus on what appropriations
mean for parliamentarians. In regards to the Netherlands’ study, Mr. Matthews stated
that:

Their conclusions are from a parliamentary perspective.
Cash results in more transparency and less complexity, and the two of those are
clearly linked. From an accountability perspective, when they looked at other countries
there was definitely acknowledgement that cash works in terms of monitoring expenditures.
If you are dealing with something more complex than that, which would encompass
the assets of the government and its liabilities, clearly accrual is a more appropriate
model. That's why we have accrual accounting for both the budget and the government's
financial statements.[22]

Along the same lines, David Good, Professor at the School of Public
Administration, University of Victoria, stated that:

Cash budgeting is not only simple and straightforward,
but it's also easier to understand than accrual budgeting. Accrual budgeting requires
relating future expenditures to present expenditures through discount rates, social
rates of return, and requires judgments and discretion. As a result, it is more
open to interpretation and I would worry that accrual budgeting could be more prone
to fudging of numbers, budgets, and allocations.[23]

Mr. Matthews also emphasized that a change from cash to accrual-based
appropriations would take the federal government close to seven years to implement.[24] Further, he stated:

[I]f we were to change the basis of appropriations
from cash to accrual, it would represent a significant change. It would be a
change in legislation. It would be a change in systems. It would be a major
change in how departments work. Two points impact there. Such a change would
require several years to implement. This is not a change that could be made
overnight. And there would also be a cost to this. Do understand that the
systems and our controls are currently built around ensuring that departments
do not exceed their cash appropriations. If we were to redo the system to make
the control on a different basis, there would be time required and there would
also be some dollars required.[25]

Despite the cost and time that would be involved in changing the basis
of accounting for appropriations, it is important to consider how to achieve the
right balance between providing meaningful information for decision making and the
complexity of accrual-based financial information. Mr. Ferguson commented that:

[I]n general, people understand cash. I think it's
very important, though, when you're dealing with an organization like the federal
government that decision-makers understand where there are risks if you just focus
on cash. The big one that comes to mind is the pension expense and pension liability,
which is very much based on understanding what the value of the pension promise
is, because it goes into the future, and then understanding how much cash you have
to set aside for that. [...] So cash may be simple, but there are certainly areas
where you have to be very careful with understanding the accrual.[26]

As previously discussed, the matter of accrual-based budgeting and appropriations
is a long standing issue. In 2006, the Auditor General tabled an audit report that
included “Chapter 1—Managing Government: Financial Information”[27] which stated that accrual-based
appropriations in the estimates would provide Parliament with the same basis for
control and approval over voted spending as the government's overall financial plan
and the summary financial statements.[28] Along the same lines, the House of Commons Standing Committee on Government Operations
and Estimates conducted a study and tabled a report in 2006 entitled Accrual
Budgeting and Appropriations in the Federal Government, which recommended that
the federal government adopt full accrual accounting for budgeting and appropriations.
The House of Commons Standing Committee on Public Accounts has also reported and
made recommendations on this matter in several reports, including Public Accounts
of Canada 2006[29] and Public Accounts of Canada 2008.[30]

The government response to past recommendations from the Office of
the Auditor General of Canada’s performance audit chapters and committee reports
on the matter has been that it would undertake a study and present a model of accrual-based
appropriations and budgeting to Parliament.

According to Mr. Ferguson:

In the [2006] report, we noted that the government
had outlined a plan to implement accrual-based budgeting in phases. It would then
evaluate the costs and benefits of accrual appropriations during the 2012-2013 fiscal
year.

In 2011, the interim Auditor General of Canada reported
that the government's progress in implementing accrual appropriations was unsatisfactory.
We encouraged the government to complete its studies of accrual-based budgeting
and appropriations, and to determine whether or not it will implement accrual appropriations
in the future.[31]

The Treasury Board of Canada Secretariat has been considering the benefits
of extending the use of accrual accounting to appropriations and departmental-level
budgeting for some time now. In 2011, the Secretariat implemented the requirement
for departments to produce future-oriented financial statements, as a means of
presenting accrual-based financial information at the beginning of the fiscal
year. However, no decision has been made on the use of accrual accounting for appropriations.

While the Committee has heard from many witnesses on whether to adopt
accrual-based appropriations or to keep the current model of cash-based appropriations,
the Committee recognizes that this matter has been raised through previous studies
and that the Treasury Board of Canada Secretariat’ analysis is ongoing. As such,
the Committee is not recommending which basis of accounting for appropriations should
be adopted. Rather, the Committee will wait to review the analysis presented to
Parliament. The Committee recommends:

RECOMMENDATION 1:

That the Treasury Board of Canada Secretariat complete its study of
accrual-based budgeting and appropriations and report back to Parliament by
March 31, 2013.

Given that the consideration of accrual-based appropriations is a
long-standing issue, the Committee will follow-up on the government’s progress
to ensure that a decision is reached within a reasonable timeframe.

The main and supplementary estimates documents outline separate
spending authorities, or votes, for each federal organization. These votes act
as a form of parliamentary control by setting an upper limit on government
spending for each vote. If the government wishes to move funds between votes, it must seek Parliament’s
approval for a transfer of funds through the supplementary estimates.

Many federal organizations have separate votes for operating and
capital expenditures. If an organization has less than $5 million in capital
expenditures, it simply has one vote, a program expenditures vote, which
includes both operating and capital expenditures. Another common type of vote
is a grants and contributions vote, which provides an organization authority to
transfer federal funds to third parties.

The current vote structure in the estimates is based on type of expenditure
and not on the purpose or goal of the expenditure. The government also presents
spending information in the estimates documents on the basis of departmental
program activities, which are intended to align groups of related activities,
expected results, and financial information. The Committee heard testimony that
the estimates vote structure could
be improved.

Some witnesses encouraged the Committee to ensure that the vote
structure was clear and made sense for parliamentarians. Michael Ferguson, the
Auditor General of Canada, said, “So I think it's purely a matter of making
sure the appropriations are clear and then making sure that the overall
management structure ensures that the spending is in agreement with what the
votes were approved for.”[32] David Good, Professor at the School of Public Administration, University of
Victoria, suggested that parliamentarians should “examine the vote structure
and ... ensure that you're comfortable with it. I would also encourage you to
examine the government's program activity structure and to ensure there's
sufficient alignment between the vote structure and the program activity structure.”[33]

One witness, Jack Stilborn, retired principal analyst with the
Library of Parliament, suggested that program activity votes may make more
sense to parliamentarians. He said:

This hierarchical organization, programs and
sub-activities and so on, that I was talking about...if that's the information
structure that parliamentarians are using, then it would make sense to make the
votes as closely related to that as possible, just intuitively.[34]

Allen Schick, Distinguished Professor at the School of Public
Policy, University of Maryland, told the Committee that operational and capital
expenditures could be merged into one budget. The subsequent question is under
what type of vote framework the budget should be presented. He provided a
response:

There are two main possibilities. One is widely
practised. The other is widely recommended. The widely practised one is by
organizational units. To the extent that an organization bears both operating
and capital costs, they should be combined in that entity's budget. The
alternative is what we call a program budget, or program structure. To the
extent that operating and capital expenditure contribute to the same objective,
they should be located within the same budgetary program, regardless of
organizational location. In other words, a program budget, in some cases, will
ignore organizational or ministerial boundaries. This is precisely why the
program budget approach is highly recommended but is rarely practised, because
to the extent that government, in addition to wanting to make robust policy,
which would require that you see capital and operating expenditure contributing
to the same objective...government has another purpose in managing its
finances, and that is maintaining accountability.[35]

Kevin Page, the Parliamentary Budget Officer, was quite clear in
his belief that parliamentarians should consider votes based on program
activities. He said:

On [vote] structure, it makes little sense in a
21st century world for parliamentarians to be voting on inputs like operations
and capital, and grants and contributions that cut across a department spending
many billions of dollars for a diverse set of program activities. Given the
recent experiences with border infrastructure funds and aboriginal housing and
education, would it not make more sense to consider program activities (five,
10 or 15 per department) or their associated outputs as more relevant control
gates? Why should ministers and their accountability officers be able to move
monies from one activity to another without scrutiny or consent? Would voting
on program activities not encourage more meaningful scrutiny on service level
impacts as we move forward with spending restraint? Would this not help
simplify our estimates system, which collects financial and non-financial
performance data on program activities?[36]

Mr. Page went on to say that “the most important suggestion I could
make, that I think would both incentivize parliamentarians to scrutinize and
make the work they do have more meaning, would be to change the control gate:
move it away from voting on inputs, operating, capital, and grants and
contributions to a program activity basis.”[37] He continued, “So the number one recommendation, sir, is to change the control
gate. Make it a program activity-based system, just the way it exists in
Australia, New Zealand, South Africa, and other countries.”[38]

Joachim Wehner, Associate Professor of Public
Policy at the London School of Economics and Political Science, told the
Committee that it would likely take several years to see results from moving to
appropriations based on programs. He said:

I believe that we see the effects of these changes
only over a number of years. If I look at the journey in South Africa, for
example, you used to have a parliament that was entirely passive and that never
did anything to the budget. That was the system inherited after the end of
apartheid. At the very least, now you have a better process, and you have at
least the possibility of more careful scrutiny. I can see now, at least in
public debates around the budget, that people are starting to ask questions
about the programs within the votes. I think this is really a level of detail
that was missing before from parliamentary discussions. You may not see major
changes for a number of years, but by making programs more meaningful, you get
much more input from the public debate, and you have much more detail, which
you can use to ask questions of the government. I'm not promising miracles
here, and I certainly have no evidence of miracles happening as a result of
these changes, but they do give Parliament a lot more information, which it can
use to ask questions.[39]

Bill Matthews, Assistant Secretary of the
Expenditure Management Sector at the Treasury Board of Canada Secretariat,
told the Committee that it needed to consider how many votes would be created
under any new vote structure. He said, “Currently we have 135
organizations that get appropriations. There are 191 votes for those135
organizations. If you think about how you might change that structure, the
number of votes is important. The more votes you have, the more cumbersome the
system becomes in terms of letting departments actually manage. So there's a
balance in there somewhere.”[40] He continued with more details:

All departments have programs and activities.
Those are rolled up into a high level called strategic outcomes. If we were to
go to a strategic outcome basis for votes, you would be dealing with just under
300 votes. We currently have 298 strategic outcomes. That's an increase in the
number of votes — again, more complexity. That's an option. One thing you could
do to sort of lessen that number is, again, take your smaller organizations and
move them to one vote as a way to reduce it. If you went to program activities
as the basis for voting, it's 593. So you're dealing with a substantial change
in the number of votes, which would actually become quite cumbersome. I've
heard some witnesses say, “Move to programs”. Over 2,000 programs — so if you
can imagine combing through 2,000 different votes, it becomes, I would say,
overly burdensome. So do keep in mind that if you're contemplating a change to
a program structure vote, the number of votes becomes important, because it
does become cumbersome to manage if you go over those. Of those 135
organizations, just to give you a sense of their size, only four of them have
voted expenditures over $5 billion. If you go between the $1 billion and $5
billion mark, you have 21 organizations, then eight between $500 million and $1
billion, and then 102 of less than $500 million. So if you were to actually
conceive of a structure where the smaller organizations only had one vote that
is a possible way of actually implementing a program-based vote without
creating so many votes that it becomes cumbersome. Do keep that in mind.[41]

Mr. Matthews also told the Committee that changing the vote
structure would change departmental controls, because departments need to have
sufficient financial controls in place to ensure that they do not exceed votes,
which serve as a limit to expenditures in a given area. He explained, “The
current controls are built around capital, operating, and [grants and
contributions]. So you're actually looking at changing systems to make sure
that the controls are put in place, and that's the key challenge there.”[42] Thus, changing the vote structure is complex and would take time, probably take
three to five years. Mr. Matthews did acknowledge that it would be feasible,
“If you move from the current structure to a program activity basis, it is
complex and would take some time — that's not to say it's not doable — and
there are some policy issues that we would have to get our mind around.”[43]

The Committee believes that the current vote structure does not
serve parliamentarians well. While the distinction between operating and
capital expenditures is understandable and comparable across organizations, it
does not provide Parliament with the kind of information best needed to review
and scrutinize government expenditures.
For example, currently, the government can transfer funds between various
programs and program activities without informing Parliament, as long as the
funds remain within the same vote. These kinds of transfers, though, are of
more interest to parliamentarians than transfers between operating and capital
expenditures votes.

Moreover, one of the primary goals of this study is to ensure that
the information presented in the estimates is as clear as possible. The
Committee believes that a balance between providing a clearer voting structure
and unnecessary complexity would be to move to votes based on program activities.
While financial information is currently provided on program activities, votes
based on program activities would be more tangible and meaningful for members,
as they relate more closely to the way members think about government
expenditures, the way that departments are organized and report on performance,
and the way that ministers make spending announcements. Thus, the Committee
believes that program activity votes would generate more interest in the votes
themselves and in standing committee consideration of the estimates.

The Committee recognizes that it will not be easy to change the
estimates vote structure, and that it will be a complex project taking several
years to implement. Nonetheless, program activity information is currently
included in the estimates, and moving to program activity votes would involve
improving departmental controls to enhance the reliability of this information
for the purposes of estimates votes. One challenge is the fact that departments sometimes change their program
activity architecture. The Committee hopes that a program activity vote
structure will reduce the frequency of these changes, which will make it easier
to compare spending from year to year.

Recognizing the complexity involved in moving to a new estimates
vote structure, the Committee believes that this is a project worth pursuing. The
Committee recommends:

RECOMMENDATION 2:

That the Treasury Board of Canada Secretariat transition the estimates
and related appropriations acts from the current model to a program activity
model, that they assist federal departments with this process, and that they
prepare a timeline for this transition by March 31, 2013, and transmit this
timeline to the Committee.

As it will take several years to change the estimates vote
structure, the Committee believes that in the meantime, members could make
better use of the information that is currently available, especially the
reports on plans and priorities.

Each year in the spring, several weeks after the
main estimates, federal departments and agencies present to Parliament reports
on plans and priorities
(also known as RPPs) which explain how they intend to use the funds voted to
them by Parliament for the coming fiscal year. Departments and agencies are
expected to discuss the challenges that they anticipate and how they will
address these challenges, the results they intend to achieve, and how they will
measure their performance. Each report is organized using the organization’s
strategic outcomes and program activity architecture. Details are provided on
financial and human resources dedicated to each program activity, as well as
expected results and performance measurement indicators and targets.

Departmental performance reports (or DPRs), which are presented in
the fall, demonstrate the results departments have achieved with the funds that
Parliament approved in the previous fiscal year. The performance reports are
intended to answer such questions as: Did the department achieve its goals? Did
it perform up to expectations, or fall short? If performance fell short, why
did it fall short, and what adjustments have been made as a consequence?

Witnesses differed over the usefulness of the reports. Joe Jordan,
former Member of Parliament and consultant with the Capital Hill Group, stated
that “[b]oth the DPRs and the RPPs make extensive use of program activity
architecture and strategic outcomes, and I agree with the previous witness that
those documents present information in a very useful way.”[44]

On the other hand, the Parliamentary Budget Officer, Kevin Page,
stated that, “In terms of standing committees reviewing the reports, I think
these reports on plans and priorities and departmental performances are weak.
They're communication vehicles. Nobody uses them.”[45]

Despite the extensive information available in the RPPs or the DPRs, standing committees do not regularly
make full use of them. This issue has been recognized for a number of years. In
1998, the Standing Committee on Procedure and House Affairs recommended in its
report, The Business of Supply: Completing the Circle of Control, that
standing committees make full use of information on departmental plans and
performance in conjunction with their study of the estimates. In 2003, the
Standing Committee on Government Operations and Estimates recommended in its
report, Meaningful Scrutiny: Practical Improvements to the Estimates Process,
that standing committees table short reports on departmental plans and
priorities and performance reports as a routine practice. However, these
recommendations do not appear to have resulted in better consideration by
standing committees of these reports.

One witness suggested that a way to encourage
standing committees to use the information contained in the reports on plans
and priorities would be to improve the timing of their presentation to
Parliament. Peter Devries, consultant and former official with the
Department of Finance, said, “Reports on plans and priorities should be tabled
with the estimates, incorporating the impact of the initiatives proposed in the
budget.”[46]

The main estimates must be tabled on or before
March 1. The reports on plans and priorities are often tabled several weeks
later. In 2012, the reports on plans and priorities were tabled on May 8. The
greater the gap between the timing of the tabling of the main estimates and the
reports on plans and priorities, the harder it is for members to make
connections between them.

The Committee agrees that the main estimates and reports on plans
and priorities should be tabled at the same time. While the quality of the
reports may vary, there is considerable useful information that could be better
used by standing committees when reviewing the estimates. The Committee
recommends:

RECOMMENDATION 3:

That the Standing Committee on Procedure and House Affairs pursue amendments
to the Standing Orders, procedure and practice of the House of Commons in order
to require the reports on plans and priorities of the government be tabled in
the House of Commons on the same day as the main estimates, and that the
Committee report to the House on its study by March 31, 2013.

Several witnesses called for improvements to the reports on plans
and priorities. With regards to having better information presented in the reports
on plans and priorities, David MacDonald, senior economist with the Canadian
Centre for Policy Alternatives, stated that:

I think there are important ways to reform the
RPPs to make them much more useful for parliamentarians. I'd argue that both
the past and the future expenditures — say,
three years into the past and three years into the future — could be included
in the RPPs, not only at the overall department level but also at the program
level. It would certainly be useful to see what those numbers are on an FTE
basis, as well, to see how employment is changing over time.

I think it's important to explain in the RPPs why
expenditures have changed, why actuals differ from budgeted, and why
expenditures over time, in terms of the projections, differ over time. You can
take departments, for instance, and plot what they think is going to happen in
three years; if you move one year forward and take that same RPP, they'll have
a different estimate for that same year the following year, with no
reconciliation as to why those projections are changing over time.[47]

Along the same lines, John Williams, former Member of Parliament
and Chief Executive Officer of the Global Organization of Parliamentarians
Against Corruption, stated that:

These two documents, plans and priorities in the
spring, which are forward-looking, and the departmental performance reports,
the DPRs, in the fall, which report past experience, should present the
information in a similar manner, the plans and priorities having three years
going forward and the DPRs having three years of historical information.[48]

The Committee agrees that information in the reports on plans and priorities
should be improved to enable parliamentarians to better scrutinize the
estimates. This can be achieved by providing additional comparative information
and including explanations on variances of spending between years and between
planned and actual results. The Committee recommends:

RECOMMENDATION 4:

That the reports on plans and priorities contain financial
information by program activity for three previous fiscal years and
for three future years.

RECOMMENDATION 5:

That the reports on plans and priorities include an explanation of any
changes in planned spending over time and of any variances between planned and
actual results by fiscal year, as available.

The budget process and the information presented in the budget
documentation are central to fiscal transparency. However, members of the
Committee are concerned that the information they receive is not always
aligned, that is, new spending initiatives announced in the budget are not
included in the main estimates, which makes it difficult to get a good picture
of the government’s planned spending for the year. This disconnect between the
budget and the main estimates is often seen as the source of the problem.
Michael Ferguson, the Auditor General of Canada, indicated that:

The main estimates do not provide a complete
picture of the spending plan and are not connected with the budget. When we
performed the audit in 2006 we found that the main reason for including items
in the supplementary estimates was timing. The tabling of the main estimates in
advance of the budget was a key factor that gave rise to increased use of supplementary
estimates.[49]

The federal budget is a policy statement, which announces new
spending initiatives and changes to taxation. Although there is no requirement
for the government to table a budget, in recent years a budget has been
presented in January, February or March.
The main estimates, which present the government’s spending plans by department
for review and approval by Parliament, do not include these new initiatives
because the main estimates are prepared prior to the budget. Consequently, new initiatives
announced in the budget must be authorized by Parliament through supplementary
estimates.

Departmental officials emphasized that the reality of government
mechanics would not allow a complete harmonization of the two documents. For
instance, the different bases of accounting hinders the alignment of the two
documents, as the budget is prepared on an accrual basis and the estimates
documents are on a cash basis.
Another point to consider is the process followed by the Treasury Board of
Canada Secretariat to review and challenge new spending proposals submitted by
departments. The timeframe to add new programs announced in the budget to the
estimates documents is quite long. It can sometimes take a few years to see
funding for new initiatives included in the estimates. Furthermore, one
particularity of the Canadian federal government is that the Treasury Board
function and the Finance function are located in separate organizations, which
is not the case in other jurisdictions. While there is some consultation
between the Department of Finance and the Treasury Board of Canada Secretariat,
the contents of the budget are kept secret at the Department of Finance until
the budget is presented in the House. As a result, departments and the Treasury
Board of Canada Secretariat are unable to incorporate elements of the budget in
the estimates until the budget announcement is made. On the matter of budget
secrecy in the estimates process, Douglas Nevison, General Director, Economic
and Fiscal Policy Branch of the Department of Finance, stated that:

There’s going to be a trade-off between secrecy
and... obviously budget information is very sensitive and can have very
powerful effects on the market moving and the like.
So trying to keep it as tightly held as possible is something we try to achieve
during the budget process.[50]

Mr. Nevison also raised the issue of the potential impact on the
pre-budget consultations done by the Standing Committee on Finance, which
happens before the preparation of the budget.[51] These consultations take place in the fall and the Standing Committee on
Finance generally tables its report in December.

In the course of this study, the Committee heard many suggestions
on how to alleviate the misalignment between the budget and the main estimates.
The Committee believes that moving the budget to an earlier date would help
solve part of the problem. Joe Jordan, former Member of Parliament and consultant
at the Capital Hill Group, concurred by noting that the “oversight function is
a legislated bit, and I think everybody wants to make sure that the job is done
in the best way possible, so I think you need to consider aligning the
information so that people get a clearer picture.”[52] He continued by saying that:

It certainly is an issue, I think, because the
costing information isn't aligned to the same time period; as I said, it's very
easy to miss the big picture for that reason. First of all, the financial cycle
... is mandated through the standing orders, but because of budget secrecy, it
wasn't possible for the government to put out the contents of the budget and
have that information available at the same time. ... If you did [the budget]
in the fall, you could reconcile it and put those numbers in the main
estimates, as opposed to what we do now, which is supplementary estimates (A)
or supplementary estimates (B), depending on the time. I guess it would be up
to the government of the day to decide whether the potential pain is worth the
gain for that particular shift.[53]

David MacDonald, senior economist with the Canadian Centre for
Policy Alternatives, also commented on the matter by saying that “it would
certainly be preferable if the introduction of the main estimates bills — and
the RPPs, for the matter — included what had just been passed in the budget.”[54] He continued by saying
that:

It would be preferable if there were just a
quarterly difference between when the budget is passed and when the actual
implications of the budget in terms of the main estimates, the reports on plans
and priorities, and the future-oriented financial reports all come out, which
is around March. That would certainly make those bills much more relevant to
the budget itself.[55]

Officials from the Treasury Board of Canada Secretariat stated as
well that the greater the amount of time between the budget and the estimates,
the stronger the links between the two documents.[56] However, they emphasized
the fact that there “will never [be] complete alignment between the two
[documents]. I think what we're talking about is whether there is a way to
strengthen the links between the two documents.”[57]

The Committee agrees with the witnesses and believes the budget
should be presented earlier. However, it does not believe it should be moved
back as early as the fall. As Mr. Nevison indicated:

Some of the witnesses have recommended that a fall
budget would be appropriate ... given that the cut-off date really remains in
December, that wouldn't necessarily give you much extra time either. You really
would be looking at a budget very early in the fiscal year. That would be
doable, but you would lose a lot of precision in terms of your economic and
fiscal forecast.

[O]ne of the key aspects of the budget is that
it's the government's five-year economic plan, so economic and fiscal forecasts
are very important and getting the first year — the “in” year — correct is key
to your forecast. So if we have a budget towards the end of a fiscal year so it
informs the next fiscal year, we'll have more fiscal information that comes
through our fiscal monitor, for example. We'll also get to have more recent
economic data, to provide a very good snapshot of where we are economically and
fiscally, to present that plan going forward.[58]

To the extent possible, members would like to see budget items for
a given year reflected in the main estimates for that same year. Without this
change, many see the information in the main estimates as not providing a
complete picture of the planned spending for the year. To address this
important issue, the Committee encourages the government to consider the
suggestions heard from various witnesses in the course of this study and to
improve the alignment between the budget and the main estimates. It is the
Committee’s position that a budget presented in January would still allow
officials to have sufficiently recent economic data, while at the same time
providing a reasonable length of time to better align the main estimates with
the announcements made in the budget.
In addition to moving up the budget, the Committee believes that the main
estimates could be delayed by a couple of weeks, as members do not need a month
to consider and adopt interim supply.

Consequently, the Committee recommends:

RECOMMENDATION 6:

That, to the extent possible, the budget items for a given year are
reflected in the main estimates for that same year; and therefore that the
government present its budget in the House of Commons no later than February 1
of each year; that the Standing Committee on Procedure and House Affairs pursue
amendments to the Standing Orders, procedure and practice of the House of
Commons in order to move the date on which the main estimates are presented to
the House back to a later date in March; and that the Committee report to the
House on its study by March 31, 2013.

The Committee recognizes that this change will not completely
resolve the issue and items from the budget will continue to be incorporated
into supplementary estimates. As the Committee believes that it should be
easier to track the inclusion of budget items into the estimates, it
recommends:

RECOMMENDATION 7:

That the government identify separately in the main and
supplementary estimates all new funding that is included in the votes, and that
it is cross-referenced to the appropriate budget source.

As discussed earlier, in 1968, the House of Commons (the House) substantially
changed the rules governing the process of supply. Rather than have all
estimates votes considered in the chamber by the Committee on Supply, the votes
were referred to the various standing committees. The expectation was that
estimates scrutiny would be more effective if undertaken by standing committees
rather than a committee of the whole, as committees would have more time to
examine the estimates and develop expertise in specific subject areas. At this
time, the House also introduced a specific financial calendar with three supply
periods and 25 days allotted for supply, thereby removing the opposition’s
ability to delay the approval of supply.

Under these changes, which are still in place, the main estimates
are referred to standing committees on or before March 1, and committees shall
report, or “be deemed to have reported” no later than May 31.[59]For
the supplementary estimates, committees shall report, or “be deemed to have
reported” no later than three sitting days before the final sitting or the last
day allotted to the opposition in the related period.[60]

The revised supply process ensures that the estimates are either
reported, or deemed to have been reported, back to the House in a timely,
predictable fashion.
This enables the government to receive parliamentary authority for its spending
without undue delay. However, one of the consequences of the “deemed to have
reported” rule is that some standing committees do not study or report back to
the House the estimates that were referred to them. In other words, as committees
are not required to review the estimates, sometimes they do not do so.

The Committee heard testimony suggesting that this rule should be
eliminated and other testimony that it should be kept.

Kevin Page, the Parliamentary Budget Officer, was emphatic. He
said, “I think we should have reports coming out of every standing committee
around those program activities to try to improve them. The deemed rule should
just go. I don't think it's even part of the conversation. To me, it's just a
symptom of failure.”[61]

Joachim Wehner, Associate Professor of Public Policy at the London
School of Economics and Political Science, believes that committees have the
responsibility to review the estimates:

I think there are many parliaments where it is
unthinkable that you would have anything happening on the floor of the House
with regard to the budget without the responsible committee reporting on the
budget. I'm not aware of any incidents in the German Bundestag, for example, or
in many other western European parliaments, where the lack of a committee
report would have delayed parliamentary practice. So why not just require
parliamentary committees to report on the estimates or on part of the estimates?
Then they are under an obligation to do so. But you just say that if you don't
do it, you're deemed to have reported. Effectively, this means that this part
of the budget will not be properly examined. Let me put it more mildly: there
is no potential, no possibility, for this part of the budget to be properly
examined. Examination at committee level is crucial.
It's not going to happen on the floor of the House. If there is serious debate
and analysis of the budget, it has to be at committee level. I would be a very
strong proponent for making sure that committees live up to their duties and
their responsibilities.[62]

Other witnesses told the Committee that the deemed reported rule
was a necessary part of the process. Robert Marleau, former Clerk of the House
of Commons, explained to the Committee that the deemed report
rule was adopted as compensation for having lost the supply days in the Committee
of the Whole. “In return,” he said, “the government was guaranteed its supply
by no later than June 30. To remove the deemed reported rule and not reconsider
the other components of the trade-off would throw the whole supply process out
of balance.”[63]

Ned Franks, Professor Emeritus of the Department of Political
Studies at Queen’s University, also thinks that the rule needs to stay:

I do not like the process of deeming, which means
that the votes are deemed to be passed whether they come out of committee or
Parliament has approved them or not.
But bearing in mind the capacity of parliamentary committees and Parliament
itself to delay, procrastinate, and simply obstruct business, I think deeming
is an essential part of the Canadian financial processes.[64]

He later continued, “I think we need that deeming thing in there as
a protection against just pure bloody-minded obstruction and the refusal to
pass budgets in
minority parliaments.”[65]

Jack Stilborn, retired principal analyst with the Library of
Parliament, had a similar view. “So the deeming rule is basically a way of
ensuring that the whole process isn't brought to a halt by what would amount to
filibustering. I think that's valid.”[66]
Paul Thomas, Professor Emeritus of Political Studies at the University of
Manitoba, also expressed his support for the deemed rule, “At some point you
have to cut off debate.
The government's entitled to have a vote on its money.”[67]

The Committee agrees that the “deemed to have reported” rule, while
not optimal, should remain as part of the House of Commons supply process. To
remove the rule could lead to potential problems and undue delays, especially
in a minority Parliament, in the government obtaining approval for supply.

On the other hand, the Committee believes that the review of the
estimates is one of the fundamental roles of Parliament and that there is no
excuse for standing committees to not review the estimates referred to them.
After all, committee review was one of the main goals of the 1968 changes to
the supply process. Standing committees have a responsibility to live up to
those expectations.

The Committee believes that an alternative way to ensure that
standing committees review the estimates is not to remove the “deemed to have
reported” rule, but to add a requirement that standing committees spend a
minimum amount of time examining the estimates votes that have been referred to
them. The minimum could be two hours, the normal length of a committee meeting,
for consideration of the main estimates.
The minimum could be less for the supplementary estimates, or left to the
discretion of the standing committee and its members. As this would require
modifications to the House of Commons Standing Orders, which lie within the
mandate of the Standing Committee on Procedure and House Affairs, the Committee
recommends:

RECOMMENDATION 8:

That the Standing Committee on Procedure and House Affairs pursue
amendments to the Standing Orders, procedure and practice of the House of
Commons in order to require standing committees to consider during a minimum
amount of time the estimates referred to them, and that the Committee report to
the House on its study no later than March 31, 2013.

While ministers cannot be compelled to appear before standing
committees, the Committee believes that having ministers defend their estimates
before committees is an important part of parliamentary accountability. The
Committee expects that standing committees will make it a regular practice to
request the appearance of ministers when examining the estimates and that
ministers will make every reasonable effort to accommodate requests to appear.
The Committee also believes that standing committees would benefit from hearing
from senior departmental officials, especially deputy heads, who are the
accounting officers of their organizations and thus responsible for ensuring
that departmental programs are in compliance with government policies and
procedures.

The Committee recognizes that the failure to consider and report on
the estimates may not be the responsibility of standing committees, but instead
may be a result of
House procedures.

As an example, the Supplementary Estimates (A), 2012-2013 were
tabled in the House on May 17, 2012, and committees had until “three sitting
days before the final sitting or the last allotted day in the current period.”
The final day to consider and report on supplementary estimates is not
immediately apparent because the government sets the last allotted day, and it
may do so at any time. On June 1, 2012, the government announced that the last
allotted day would be June 6, 2012, which effectively ended the possibility to
report on the supplementary estimates. Thus, standing committees effectively
had one sitting week to plan an estimates hearing, hold the hearing, and report
back to the House. In these circumstances, the Committee is not surprised to
note that no standing committees reported to the House on Supplementary
Estimates (A), 2012-2013 prior to the prescribed deadline. Instead, all
estimates votes were deemed to have been reported.

The Committee believes that standing committees need to be given
sufficient time to hold hearings and to report on the supplementary estimates.
A minimum of two sitting weeks should be available to committees from the time
the supplementary estimates are tabled in the House to the time when they must
be reported back to the House. The Committee recommends:

RECOMMENDATION 9:

That as part of its amendments to the Standing Orders, the Standing
Committee on Procedure and House Affairs examine the feasibility of providing
standing committees at least two sitting weeks to consider and report on the
supplementary estimates, and that the Committee report to the House on its
study no later than March 31, 2013.

The current practice for most standing committees when they review the
estimates is to schedule a hearing with the appropriate minister and departmental
officials. However, these meetings are often not planned well in advance, leaving
little time for committee members and officials to prepare for the estimates hearing.
This can make it difficult for officials to prepare detailed responses to possible
questions that members may ask and can leave members feeling frustrated should they
not receive the answers they were looking for.

The Committee heard testimony that one way to improve the quality of
the responses to members’ questions would be to provide questions to departmental
officials in advance. Joe Jordan, former Member of Parliament and currently consultant
at the Capital Hill Group, told the Committee, “If committees would undertake to
provide some of their questions in written form ahead of time to officials, you
might get better answers than through the ebb and flow of what goes on with everybody
being surprised.”[68] From the departmental side, Sally
Thornton, Executive Director of Expenditure Operations and Estimates at the Treasury
Board of Canada Secretariat, said, “I'd really like to stress that if you really
want to follow the dollar, give questions in advance to departments. It helps a
great deal to know what the question is and to have the opportunity to respond before
sitting here.”[69]

The Committee learned that this is the current practice in New Zealand.
The New Zealand Finance and Expenditure Select Committee develops a standard estimates
questionnaire that is sent to all departments and agencies, usually about six weeks
prior to the budget tabling date. The questionnaire asks about significant changes
in the votes from the previous year and about critical issues expected to be dealt
with in the coming year. David McGee, formerly the Clerk of the New Zealand House
of Representatives and currently the Parliamentary Ombudsman, told the Committee,
“There's a standard set of questions that have been drawn up by finance committees
in the past, but any other member might add particular questions to the questionnaire.”[70] He continued,“The questionnaire is usually sent out as soon as the budget date is known. The
answers are expected to be delivered back to the committee the day after budget
day. You can have up to two months to work on it. It's often quite a reasonable
period of time for departments to prepare their replies.”[71] Mr. McGee noted that individual members have their own interests and pose
questions to departments in these areas.

The Committee believes that the practice of providing questions to departmental
officials in advance of an estimates hearing is a good one because it helps officials
prepare and ensures that members get detailed responses to their questions.
Members would not need to be precise about their questions, as identifying the
area of intended inquiry can help officials gather the relevant information.
Additionally, members would not be precluded from asking other questions during
a hearing. Rather, providing questions in advance is a good practice that should
be adopted where feasible.

To some extent, the ability to pose precise questions and have
meaningful responses depends upon the witnesses that appear before standing
committees.
The Committee also believes that estimates hearings would be more productive if
standing committees clearly indicated who they would like to invite to
hearings, and, in turn, departments would provide advance notice about who
would be attending.
The Committee recommends:

RECOMMENDATION 10:

That, where feasible, standing committees provide questions to departmental
officials in advance of hearings on the estimates, and that committee members
endeavour to ensure the necessary departmental officials are invited to appear
for estimates hearings.

Statutory forecasts represent payments to be made under legislation
previously approved by Parliament. In other words, they are not included in
appropriation bills because they are authorized on a continuing basis by their
enabling legislation. Statutory forecasts are included in the estimates, along
with voted expenditures, to provide a more complete picture of total estimated
expenditures. In a given year, statutory forecasts account for approximately
two-thirds of total federal expenditures.

The 2009 Treasury Board Policy on Evaluation requires departments
to evaluate the “administrative aspect” of major statutory spending every five
years. The Standard on Evaluation for the Government of Canada requires
evaluations to include an accurate assessment of the results achieved by the
program being evaluated as well as clear conclusions on their relevance and
performance.

The 1998 report of the Standing Committee on Procedure and House
Affairs, The Business of Supply: Completing the Circle of Control,
included several recommendations related to parliamentary financial review of
statutory items. Of these recommendations, there was a proposal for the
Standing Committee on Government Operations and Estimates to examine statutory
spending on a cyclical basis using the concept of program evaluation.[72] In reference to these
previous recommendations, John Williams, former Member of Parliament, stated
that “[a]ll government programs should be evaluated at least once every ten
years to: one, articulate the public policy objectives of the statutory
program; two, decide whether or not these objectives are being met; three,
whether or not the program is being effectively managed; and four, whether
there are alternative means of meeting the same policy objectives.”[73] He continued that:

[The Standing Committee on Government Operations
and Estimates] has the authority under Standing Order 108(3)(c)(x) to examine
statutory expenditures. To do so, it can ask the House to request that the
government conduct program evaluations as outlined above to assist the
committee in its work.[74]

With respect to how parliamentarians should evaluate statutory
expenditures,
Joe Jordan, another former Member of Parliament, stated that “you have to go
back [...] and figure out exactly when those authorities were granted and ask
whether conditions have changed.”[75]

The committee is of the opinion that although authority for
statutory spending is already approved through existing legislation, it
represents a significant proportion of government expenditures and should thus
be reviewed on a systematic basis.
Standing committees that are reviewing the estimates of a given department
would be best situated to review the related statutory programs on a cyclical
basis. This would allow members to develop familiarity with a given program and
through committee study, determine whether the statutory program is meeting its
intended objectives. As such, the Committee recommends that:

RECOMMENDATION 11:

That standing committees review statutory programs on a cyclical
basis, at least once every eight years.

The main function of the tax system is to raise the revenues
necessary to support government expenditures. Another function of the tax
system is to achieve public policy objectives through the application of
special tax measures. “Tax expenditures” include measures such as low tax
rates, exemptions, deductions, deferrals and credits.

Tax expenditures are presented annually in a report entitled Tax
Expenditures and Evaluations, which is published by the Department of
Finance.It provides estimates and
projections for broadly defined tax expenditures as well as evaluations and
analytical papers addressing specific tax measures.[76] With regards to magnitude,
Kevin Page, the Parliamentary Budget Officer, stated that “the government's tax
expenditures amount to over $100 billion every year.”[77]

Although tax expenditures essentially represent foregone tax
revenues, they are not routinely reviewed by parliamentarians. Currently, the
Standing Committee on Government Operations and Estimates has the authority
under Standing Order 108(3)(c)(x) to examine tax expenditures.

The lack of parliamentary scrutiny over tax expenditures has been
raised in previous reports, namely the 1998 report of the Standing Committee on
Procedure and House Affairs, The Business of Supply: Completing the Circle
of Control. This report recommended that annual information on tax
expenditures be provided in a format that lends itself to use by standing
committees in their examination of the estimates.[78] It also recommended that
there be a thorough review based on a schedule established by government, and
conducted on a periodic basis thereafter, of all tax expenditures.

On the subject of both tax expenditures and loan guarantees, John
Williams, former Member of Parliament, stated that “these can represent huge
sums of money and important public policy; therefore, the House needs some way
to scrutinize them.”[79]
He also stated that there is “nothing that comes before Parliament on tax
expenditures that gives [members of Parliament] information.”[80]

Some witnesses recommended that tax expenditures be evaluated in
the same manner as government programs. David Macdonald, senior economist with
the Canadian Centre for Policy Alternatives, stated that “exemptions to the tax
code should be evaluated in the same way programs are evaluated in the RPPs — that
is, to determine whether they're delivering what they were supposed to deliver
for the money they cost.”[81]

David Good, Professor at the School of Public Administration,
University of Victoria, also made the suggestion “to review tax expenditures
and include them in departmental reports.”[82] He went on to say that:

Despite the large amount of money and their
increasing use, tax expenditures are not subject to a system of review and
scrutiny as other expenditures. Tax expenditures are forgone revenues. In fact
they are not budgeted the same way as direct expenditures — in fact are not
budgeted at all. [...] They are not included in budgets and the estimates of
departments. They are not part of the public accounts of government. They are
not reviewed by Parliament and its committees. They do not come to the
attention of financial watchdogs. They are not regularly audited by the
internal auditors or by the Office of the Auditor General nor evaluated by
program evaluators.

At a minimum, as part of the estimates documents, departments
should provide parliamentary committees with a report on the tax expenditures
relating to their areas
of responsibility.[83]

The Committee believes that given the importance and magnitude of
tax expenditures, information that would allow for better transparency and
accountability should be made available to members of Parliament. This
information could be presented in the departmental report on plans and priorities
document, such that standing committees could then study tax expenditures on a cyclical
basis. Tax expenditures could be grouped thematically and presented in the best
aligned department’s report on plans and priorities. The tax expenditures
included in the Department of Finance Tax Expenditures and Evaluations report are grouped according to functional categories
(e.g. culture, education, employment, etc.), though it is not intended to
reflect underlying policy considerations. This grouping by functional category
could be used to group thematically and allocate to the various departments’ RPPs.
Nonetheless, some tax expenditures would be best situated in the Department of
Finance Report on Plans and Priorities. As such, the Committee
recommends:

RECOMMENDATION 12:

That departments and agencies include tax expenditures, currently
included in the Department of Finance’s Tax Expenditures and Evaluations report, in their reports on plans and priorities, as determined by the Treasury
Board of Canada Secretariat to best fit their mandate.

RECOMMENDATION 13:

That standing committees review tax expenditures presented in
departmental reports on plans and priorities on a cyclical basis at least once every
eight years to assess whether or not they are meeting their intended objective.

When it comes to scrutinizing the government’s spending plans, one
recurring impediment identified over the years by parliamentarians and by
observers is the lack of resources and tools parliamentarians have to
effectively review the estimates and the vast quantity of information they
receive. Paul Thomas, Professor Emeritus of Political Studies at the University
of Manitoba, best captured this sentiment when he stated that “MPs are stuffed
with information and starved for understanding. You have this mountain
of information come at you, and you just don't know what to do with it.”[84]
As members are called to fulfil many obligations, the time available to them
and to their staff to study and consider the estimates documents, as well as
the complexity of those documents, impedes scrutiny. The OECD Best Practices
for Budget Transparency emphasizes that “Parliament should have the
opportunity and the resources to effectively examine any fiscal report that it
deems necessary.”[85]

Previous parliamentary reports on the estimates process have made
recommendations to improve the support provided to committees and members of
Parliament. The 1998 and the 2003 reports asked for a concise, comprehensive
information package on the estimates and supply process and government
financial management from the Treasury Board of Canada Secretariat, sessions on
the estimates process in the orientation provided to newly-elected members of
Parliament and follow-up training each year, and enhanced support from the
Library of Parliament on the estimates-related work of standing committees.[86] Members of Parliament
presently receive periodic briefings from the House of Commons and the Library
of Parliament, but these briefing sessions are not well-attended by members of
Parliament and their staff.

A better understanding of the overall cycle of the estimates and
supply process and its related documents would help increase the scrutiny of
government spending by standing committees. The challenge of members of
Parliament being able to attend briefing sessions could be addressed by having
each standing committee plan an in camera meeting dedicated to a briefing on
the estimates and supply process. The briefing could be provided by the House,
the Library of Parliament and/or the Treasury Board of Canada Secretariat. The
Committee recommends:

RECOMMENDATION 14:

That standing committees dedicate an in camera meeting at the
beginning of a new Parliament, and periodically as needed, for a briefing
session on the estimates and supply process and the related documents, with a
focus on the committee’s role in scrutinizing government spending.

Committee members are of the opinion that more support to review
the estimates is needed and that the time has come to design a process that provides
members of Parliament with the tools and capacity to recommend improvements in
how taxpayers’ money should be spent.

On that issue, the Committee heard from many witnesses that the
role and the mandate of the Parliamentary Budget Officer (PBO) should be
clarified and strengthened. The PBO was created in 2006 by amendments to the Parliament
of Canada Act with a mandate to provide independent analysis to Parliament
on the state of the nation’s finances, the government’s estimates and trends in
the Canadian economy; and upon request from a committee or parliamentarian, to
estimate the financial cost of any proposal for matters over which Parliament
has jurisdiction.

Allen Schick, Distinguished Professor at the School of Public
Policy, University of Maryland, indicated that:

Canada, [in establishing a Parliamentary Budget
Officer], was following a trend that is quite widespread around the world, and
that is staffing up parliament to be able to better perform its budget-related
responsibilities. In most countries, however, I should note that the staffing
occurs at the committee level, so that the additional staffing that is
available to parliament to review the estimates, to offer options, to challenge
the assumptions when it's appropriate — these are committee staffings, and
therefore it has a low profile and is subordinate to the committee process in
parliament.

The role often is to review the estimates to see
whether they are reliable. The key budget work today around the world is not
simply whether the money should be spent, but are the assumptions underlying
the estimates robust? Are they reliable?[87]

On the changes that could be considered to strengthen Parliament’s
capacity, Joachim Wehner, Associate Professor of Public Policy at the London
School of Economics and Political Science, stated that:

[T]he first is to protect and enhance the role of
the Parliamentary Budget Officer. Internationally, the Parliamentary Budget
Officer of Canada is very highly regarded, and it's certainly a major change
... in the degree the parliament in Canada has access to an independent, highly
professional research capacity. ... some adjustments are possible to the legal
framework for the Parliamentary Budget Officer. In particular, this role could
be strengthened, or the status be strengthened, if he were a full officer of
Parliament. Moreover, steps could be taken so that the Parliamentary Budget
Officer has total access to all relevant information... . I see some scope for
strengthening it also on the basis of international experience.[88]

Witnesses stated that making the PBO a full officer of Parliament
and having the PBO report to the Committee would address the PBO’s request for
greater access to documentation. It would also address the need for expanded
support for committees to help them better understand the estimates documents
and have more in-depth analysis and work on the estimates. John Williams,
former Member of Parliament, indicated that:

The Auditor General supports the public accounts
committee. His report is tabled and referred to the committee. You have this
close relationship between documentary support by the Auditor General and the
committee's capacity to make inquiries of witnesses.
The Parliamentary Budget Officer should be doing the same, giving you the
report so that you, as the members of Parliament, can ask the important
questions. Because the Parliamentary Budget Officer really doesn't have a
reporting mechanism right now, he has his own press conferences and speaks in
public. The Auditor General doesn't do that. I would think you should be looking
at it along the same lines for the Parliamentary Budget Officer — an officer of
Parliament, reporting here, giving his reports to you, and you ask the
questions.[89]

The Committee believes that the work of the PBO has been useful for
members of Parliament and for standing committees and that having this office
located within the Library of Parliament has created unnecessary confusion in its
mandate. Thus, the Committee recommends:

RECOMMENDATION 15:

That the House of Commons give its Standing Committee on Government
Operations and Estimates the mandate to undertake a study of the Office of the
Parliamentary Budget Officer which would include a thorough analysis of the
mandate and function of the Office in order to better serve members of
Parliament; and that in its study, the Committee should consider all structural
models for the Office including, but not limited to, the Parliamentary Budget
Officer reporting directly to Parliament as an Officer of Parliament.

Currently, the government prepares a number of documents which
provide financial information on a department’s plans and results including the
budget, the main estimates, the supplementary estimates, the report on plans
and priorities, the departmental performance report, and the quarterly
financial reports, among others. Each of these documents should be designed to
add value to the process of parliamentary scrutiny of planned spending. The
linkages between the documents themselves should be clear, such that all standing
committees can use them to support their review of the estimates.

One obstacle to effective scrutiny of the estimates relates to the
information available and the ability of members to “connect the dots” between
the different reports. Part of the issue is having the right information for
members and that this information is available at the right times.

In this respect Jack Stilborn, retired principal analyst with the
Library of Parliament, stated that:

Attempts to improve Parliament’s effectiveness in
scrutinizing government spending should focus on what Parliament actually does
rather than on what we have traditionally thought it should do. Parliament’s
attention to government spending is issue-driven and highly episodic. The
critical improvement challenge is thus the availability of information when
needed by Parliament rather than the fine-tuning of formal reports or the
attempt to redeem the formal estimates process by means of procedural tweaking.[90]

While much of the information available to parliamentarians is
presented in both print and electronic form, this information is either highly
aggregated or is challenging to analyze in the context of the various
inter-related documents. Joe Jordan, former Member of Parliament and consultant
with the Capital Hill Group, suggested that members examine opportunities that
technology presents to help manage the volume of information. Mr. Jordan
commented that “MPs and Canadians should be able to access online analytical
processing tools or data cubes that allow for multi-dimensional extraction and
analysis of data to increase understanding of government operations.”[91]

Along the same lines, Mr. Stilborn suggested that:

A flexible online resource that allows MPs and
staff to drill down to individual activities and get a concrete picture of
planned costs, or what is being accomplished and what the present costs are,
should be the priority. Such a resource might occasionally be useful for the
consideration of estimates. More importantly, it could support attention to
government spending outside the estimates process, where most parliamentary
action actually happens now. It should be designed with that role in mind.[92]

Consideration would need to be given to the extent of information
currently available and what else is needed. On that matter, Mr. Stilborn
stated that:

In theory, that drill-down environment is already
there. It just needs to be made available to Parliament. Second, although the
idea has traditionally been anathema to governments, a capacity of this
resource to break out activities and spending on a riding-by-riding basis is
also needed. Yes, this will predictably produce a great deal of posturing about
real or imagined inequities. But it would enable questions relevant to
Canadians to be asked. Facts would be provided and explanations given.
Ultimately, this is a
healthy thing.[93]

From a transparency and accountability perspective, Mr. Jordan
stated that:

In terms of technology, we're not talking about
simply putting the blue book online.
We're talking about arranging the data in such a way that people can go at it
from as many different perspectives as exist. [...] It's a huge, complex
machine, and one of the things that MPs have to do is try to make sure that
we're getting our money's worth. [...] it's allowing Canadians to go online and
look at data and be able to come up with extraction analytical tools that can
tell them what they want to know..[94]

On whether it is possible to create an online tool to compare the
information on program activities of all departments with the information on
supply matters, the Parliamentary Budget Officer, Kevin Page responded that
“[y]es, it is possible to make a lot of progress along those lines.”[95]

From a process perspective, Mr. Jordan suggested that the
government consult with industry and also start with a pilot program. He
suggested that government “talk to some of the leading business software
companies about the concept of data cubes and how allowing an unlimited
approach to how you can drill down and extract and analyze information is going
to allow people to get a clearer picture of what government is up to.”[96] He went on to suggest
that:

In terms of process, you probably want to pick
small departments and try this approach, as opposed to making a complete
change. I think there are certain departments autonomous enough that you could
use them as pilots for a couple of different models. Rather than having data
forced into this current template, there could be a website where people could
access as much data as the government would be comfortable putting online.
There'd be certain reasons that some information wouldn't be there, but I don't
think there's any reason that a lot of it can't be there.[97]

With regards to costs, Mr. Stilborn stated that:

I have heard officials express some concerns about
the cost of putting it online, for example. It could be that if you think about
it in a very narrow framework focused on the formal estimates process, that
might be a fair point to make. But if you think of it as an information
resource supporting Parliament working on programs and their effectiveness both
inside and outside the formal estimates process, then any costs involved become
correspondingly more understandable.[98]

Since one of the objectives of parliamentary scrutiny of the
estimates is to provide adequate oversight of government, members of Parliament
must have the right tools to do so. Throughout the course of its study, the
Committee identified availability and adequacy of information as one of the
main problems for members of Parliament trying to “connect the dots”. As such,
a searchable online database was presented as a solution to respond to the need
for information on a timely basis. Given the volume and complexity of data
available, the Committee recommends:

RECOMMENDATION 16:

That the government develop a searchable online database that
contains information on departmental spending by type of expense and by
program.

Over the past few months, the Committee has heard considerable
testimony from former parliamentarians, knowledgeable observers, academics,
departmental officials, and officials from other jurisdictions. The Committee
appreciates the time and effort these individuals took to prepare their
presentations to the Committee, and their many useful ideas and suggestions on
how to improve parliamentary review and scrutiny of the government’s spending
plans, as outlined in the estimates. While it has not been possible to
incorporate every suggestion into this report, the Committee carefully
considered all of the testimony before it and chose to make recommendations in
the areas that would be the most effective.

The Committee recognizes that there has never been a golden age of
estimates review and that the Westminster parliamentary system comes with
certain limitations on parliamentary involvement in the budgetary process,
e.g., that budgets are set by the government and not Parliament, that budgetary
votes are matters of confidence in the government, and that members of
Parliament have many demands on their time and expectations to fulfill.
Nonetheless, the Committee believes that the scrutiny and approval of the
government’s spending plans is one of the fundamental roles of Parliament, and
that there are a variety of ways that the parliamentary processes, estimates
information, and capacity available to members can be improved.

The Committee believes that standing committees should be required
to examine the estimates referred to them, and that they should have sufficient
time to do so.
The effectiveness of their hearings on the estimates could be improved by
providing questions to officials in advance. The ability of parliamentarians to
use and understand estimates information would be improved if the vote
structure was based on program activities instead of operating and capital
expenditures, the timing of the budget and the estimates was changed to better
align the estimates with the budget, the reports on plans and priorities were
presented at the same time as the estimates, tax expenditures were included in
the reports on plans and priorities, and statutory expenditures were evaluated
periodically. The capacity of parliamentarians to review the estimates would be
improved with an online, searchable database, by reviewing the mandate of the
Parliamentary Budget Officer in order to better serve members of Parliament in
their examination of the estimates, and by standing committees having briefing
sessions on their role in the estimates process and how to understand and
interpret estimates documents.

The Committee believes that these changes are modest, feasible and
should make a noticeable improvement in the quantity and quality of estimates
review by standing committees. Nonetheless, the Committee intends to follow-up
on this report in order to ensure that the government has made progress in
implementing the recommendations directed to it, and that standing committees
are fulfilling their responsibilities in holding the government to account for
economical, efficient, and effective use of public funds.